Banker warns over payday loans

Consumers should be very aware of the risks they run of getting into severe debt when taking on payday loans, the Co-operative Bank has warned

This was the advice of Robin Taylor, head of banking at the financial services provider, who stated: "I don't think it is a case of just stigmatising payday loans, I think it is more a question of understanding as a customer exactly what the [terms] and conditions are of the products and the interest and the charges that may be levied against you."

He added that people should be "very clear" about what they are taking on if they opt for a payday loan and suggested that it would be wise for them to speak to their bank first, as this would enable them to access expert advice.

The comments come as many consumers seek out such borrowing, which have aroused controversy for a range of reasons.

Among these are the very high rates of interest, the hefty roll-over charges if people cannot pay back the loan in full on the due date and the fact that the fast turnaround means adequate credit checks may not be taking place.

In addition to this are concerns that people who get into trouble with payday loans are not being given any leeway by the providers of them.

These issues have led to the Office for Fair Trading (OFT) recently announcing that it is to investigate the industry and may take action against payday loan providers that have breached its codes, including on the fair treatment of people who have problems making payments.

Failures to carry out adequate affordability checks, concerns that the rolling over of loans is making them unaffordable and the allegation that particular financially vulnerable groups are being targeted are all central features of the probe it announced on February 24th.

But while this may see action in the longer term to stop unacceptable lending practices, good advice now may help people avid falling into such traps in the meantime.

By James Francis